Source: The Banker/1 August 2017
By: James King
Botswana-based Letshego is using years of experience to fulfil its aim of reaching sub-Saharan Africas unbanked population, as group managing director Chris Low tells James King.
In sub-Saharan Africa about 326 million adults do not use formal or semi-formal financial services. This unbanked group, according to consultancy McKinsey, offers innovative finance providers with a peerless growth opportunity. Indeed, momentum is building behind Africa’s financial inclusion agenda; mobile money operators are on the rise, commercial banks are launching microfinance units, and governments are pushing to formalise economic activity in their respective markets.
In this environment, Letshego, a Botswana-based financial services provider, stands apart. Boasting a pan-African footprint across 11 countries, Letshego’s ambition is to become the continent’s leading inclusive finance group.
To achieve this, it is relying heavily on digital finance offerings tailored to the needs of the unbanked and underserved. The company is benefiting from years of accumulated knowledge in key markets, in which it started out as a lender to civil servants, and the expansion of its network to serve remote populations.
Wide open opportunity
“Letshego’s diversification into digital financial services came about through a recognition that commercial banks can only come so far down the economic pyramid. This has left a wide open space, in terms of customer segments, that no one has tapped into on a pan-African basis,” says Chris Low, group managing director of Letshego.
Recent years have improved the information environment around Africa’s unbanked population, as non-governmental organisations and multilateral bodies have generated new data sets on the financial preferences of this demographic. For players such as Letshego, this has helped to illuminate the opportunities on offer and to better serve its existing customer base. But with digital financial services playing an ever-greater role in financial inclusion, new challenges are emerging.
“As far as we’re concerned, the biggest challenge to digital financial services is cashing in and cashing out – the start or end point of any digital transaction,” says Mr Low.
Tackling remote regions
To overcome this challenge, Letshego is pushing ahead with an omni-channel growth strategy. An expansion of the group’s physical presence across key markets is occurring in tandem with the growth of its agency banking model. This includes agreements with partner agents and third party agents in its key markets, as well as its own-branded agents, which is helping to push Letshego’s presence into remote areas of its target markets.
In Mozambique, the group launched its LetsGo Blue Box agency banking model in early 2017 with plans to expand this network by a few hundred operators before the end of the year. “These agents can open new accounts and deposit, withdraw and transfer funds for customers. Each agent receives a tablet or mobile with our banking software preloaded, as well as a biometric reader. A rechargeable solar powered battery is also provided,” says Mr Low.
This model is notable because it addresses issues of interoperability. As Africa’s digital financial services revolution has accelerated, some markets are experiencing instances where different payments systems are failing to interact with one another. This may come down to technical, regulatory or commercial difficulties but in each instance customers are usually inconvenienced. For instance, Kenya’s M-Pesa, a mobile phone-based money transfer and financing service, does not work with competing providers in the country.
“The problem with some mobile money operators is that they aren’t interoperable. Letshego is trying to bridge that gap. In Mozambique, for example, our LetsGo offering is a bank account linked to the national payment switch, SIMO, meaning funds can easily be moved between different banks,” says Mr Low.
Indeed, Letshego has been awarded $1m in grant funding for LetsGo BlueBox after winning the MasterCard Foundation’s Rural Prosperity Fund innovation competition in 2017. And elsewhere on the continent, the group is rolling out other digital innovations.
“In east Africa, our e-loans product, which runs off M-Pesa, is operational in Kenya. This allows our customers to apply for new loans and top up existing ones remotely. We make use of the customer’s historical data to score each application, meaning a decision can be reached in minutes,” says Mr Low.
As the only commercial inclusive finance provider with a genuine pan-African footprint, Letshego’s experience has been coloured by regulatory and commercial differences in each of its markets. On this point, the group has adapted its business model and approach to match these differences. So while the intersection between digital finance and financial inclusion becomes busier across Africa, there will always be a place for local on-the-ground knowledge.
“Every market in Africa is at a different stage of development when it comes to digital finance. You can’t easily apply what you have learned in one market to another. But this is our advantage. We have been on the ground for years and we know the continent,” says Mr Low.